PE funds prefer minority stake in Indian firms, finds report

PE funds prefer minority stake in Indian firms, finds report

Mumbai: Private equity (PE) companies in India prefer to pick up minority stakes in companies rather than majority ones, a Tuesday report from New Delhi-based investment bank SMC Capitals Ltd said.

Between calendar 2005 and the first half of calendar 2009, the total value of PE deals was $41.91 billion (Rs2 trillion at Tuesday’s rates) but only $2.52 billion (Rs0.12 trillion), or 6%, of those were controlling stake transactions, the report said.

The largest controlling stake transactions were the $900 million investment, worth an 85% stake, by Kohlberg Kravis Roberts and Co. (KKR) in Flextronics Software Systems in 2006 and the $200 million investment worth an 80% stake by the Blackstone group in Intelenet Global Services Pvt. Ltd in 2007. The report said that the trend could likely be because Indian promoters are emotionally attached to their firms.

“India’s corporate world is driven by family-run business and not CEO-run business. The major decisions are taken by the promoters and not CEOs." said Jagannadham Thunuguntla, equity head at SMC Capitals, and the author of the report.

Vikram Utamsingh, head of private equity KPMG India Pvt. Ltd, said that in India “If a promoter relinquishes stake in his business it is seen as a stigma that you cannot manage your own business and hence have to relinquish it". “There are many enterprises in India which are family-run, where the fourth or fifth generation is managing the company. The market is not ready yet to do enough controlling stake transactions," said Mahesh Chhabria, partner 3i India Pvt. Ltd.

However, both said that there was no dearth of good managerial talent.